Private Labels Shine

Private Labels Play Leading Role for Food and Drug Retailers

Innovative store-brand health-and-wellness products shine during the pandemic and beyond

BY MARK HAMSTRA

Private labels have evolved to be at the leading edge of innovation for many food and drug retailers, tapping into the latest consumer trends while retaining their “value” halo.

Sales of these products soared during the COVID-19 pandemic and have retained a dedicated following in many categories as consumers readily switched brands and sought more economical choices to stock their pantries and medicine cabinets.

“As proven in the past when consumers try own brands, the quality and value wins them over and many remain loyal consumers,” said Peggy Davies, president of the Private Label Manufacturers Association. “The past 10 years of growth of private brands, especially with discounters and mass merchandisers, are evidence of that.”

Target, Walmart, CVS, Kroger, Casey’s and many other retailers have all either expanded their own-brand lines or launched brand new private-label lines in plant-based products, pets or home goods, she said.

Drug store chains in particular have been aggressive in categories such as food, beverage, snacks and household goods in order to gain share from grocery and mass channels, Davies said. “By listening to their shoppers and positioning their offerings as a ‘one-stop shop’ in many departments, this strategy is delivering.”

In the OTC and HBC categories, for example, store brands showed strong growth in the second quarter, year-over-year, compared with 2020, Davies pointed out, especially in pain relief, eye care and first aid products. In total, HBC private-brand dollar sales were up 8.5% in drug chains and had a 3.9% increase in unit share, she said, citing PLMA research from NielsenIQ.

She said drug stores may also have opportunities to expand their private-label assortments in edibles, citing CVS as an example of a company that has been a leader in this area with its store-brand food and beverage products, including snacks.

“Drug chains are the first place many turn to when they think of healthcare products, and while in the store or on the website, the purchase of snacks, beverages, etc., is a natural expansion of their purchase,” Davies said.

Retailers also have opportunities to drive private-label sales growth by offering discounts or incentives through their loyalty programs, she pointed out, citing both CVS and Walgreens as examples of drug store banners that promote their store brands effectively through their loyalty platforms.

Value-Based Solutions

Brenda Lord, vice president of private brands and quality assurance at CVS Health, agreed that consumer shopping habits shifted toward value opportunities during the pandemic. “With CVS store brands’ products averaging 20% to 40% lower in cost than competing brands, shoppers’ shift toward value directly impacted our sales of CVS Health and Live Better by CVS Health products, as customers were looking for more wellness products to be proactive about their health goals,” she said.

Lord noted that this year alone, CVS has added more than 400 new products under its portfolio of store brands, and the company has continued to see “an incredibly positive customer response” to these items. New products include vitamins and supplements, better-foryou snacks, and over-the-counter health products, she said, adding that offering these items in store-brand varieties “make some of the latest trends in wellness more accessible to the average consumer.”

In 2020, CVS’ overall store-brand portfolio grew six times faster than national brands, Lord said, and store-brand health-andwellness offerings, including CVS Health and Live Better by CVS Health, grew at twice the rate of national brands, she said.

The company’s product introductions also included new items in the mental well-being category, including a Breathing Guidance Light to help guide users in calming exercises and a Daylight Lamp that seeks to create a healthier, natural work environment. CVS also expanded its at-home fitness and recovery assortment with resistance bands, massage tools and pain relief devices to empower consumers to relieve stress in a healthy way, Lord said.

“The pandemic illuminated the importance of holistic health and normalized conversations on mental well-being,” she said. “As an enterprise, we are working to make mental well-being services more accessible, less complicated and more inviting.”

Consumer Trends in Private Label

Nicole Stump, director of CPG – category management at McKesson, said consumer shopping behavior evolved quickly during the pandemic, to the benefit of private label and retailers that have been able to provide depth and breadth in their product offerings.

“Consumers have demonstrated that they are willing — more than ever — to switch brands,” she said. “This has opened the door for private label to capture even more market share at a faster rate. It’s truly been remarkable.”

She agreed that consumers are taking a more proactive approach to their health, which has led to opportunities in categories such as vitamins, sleep remedies and homeopathic medicines.

“Often, we see brands lead in these areas with private labels acting as fast followers,” Stump said. “However, the market has shifted and private-label products are innovating faster than their competition.”

Amy Groth, marketing manager of private label at Garcoa

Private Label Pet Care, HBC, Kitchen Items Show Growth

First-quarter private-label sales were down in the drug store channel compared with a year ago, according to the Private Label Manufacturers Association, although there were bright spots in pet care and kitchen products as retailers benefitted from the increase in pet ownership and cooking at home.

The following are some select product categories that saw private-label sales growth in the first two quarters in the drug channel.

Q1 2021 - Drug Chains

(dollar sales versus year ago)

Pet care

+11%

Pet food

+21.5%

Kitchen accessories +23.1%

Kitchen utensils

+24.7%

Second quarter overall private label HBC dollar sales were up 8.5% in the drug channel, an increase of $115 million in added privatelabel sales compared with a year ago.

Q2 2021 - Drug Chains

(dollar sales versus year ago)

Kitchen accessories Household maintenance Water Eye care First aid Pain relief Laundry care Detergent Bleach Pet food

Dog food

+1.9%

+16.8% +16%

+35.1%

+12%

+27% +30.1% +32.3%

+16.1% +60.2%

+13.6%

Source: PLMA/NielsenIQ

Q&A WITH CVS HEALTH’S BRENDA LORD

Value, Transparency and Sustainability

CVS Health’s Brenda Lord highlights consumer trends influencing the retail giant’s store-brand portfolio

Drug Store News interviewed Brenda Lord, vice president of private brands and quality assurance at CVS Health, about the retailer’s private-label program.

Drug Store News: What are some of the significant trends you are seeing in consumer demand for private-label products?

Brenda Lord: Our customers are at the heart of everything we do, and our team is responsible for creating innovative products and product lines that customers can’t get anywhere else. We do this by relentlessly looking at customer insights and identifying trends and opportunities in the market for innovations. We’ve been listening to and working with our customers to engage and meet their needs in ways others haven’t.

Guided by current shopping behaviors and consumer feedback, signaling further shifts toward value, transparency and sustainability, our storebrands launches this year across health, grocery and beauty were created to satisfy unmet customer needs. The expansion of these exclusive lines goes beyond the comparison to products that are typically associated with store-brand lines, and instead offer premium products at affordable prices. We’ve seen that younger and health-minded consumers are responding positively to our exclusive offerings, noticing the purpose, passion, quality and value across our store-brands portfolio. Based on customer feedback and current trends, we also found that our customers were looking for more alternatives in health care, requesting transparency from the brands they love and aspiring to make a positive impact on the planet.

This past year, consumers were looking for solutions to support their overall health. According to Nielsen, U.S. dietary supplement sales rose by 51.2% in March as COVID-19 spread, with CVS’ vitamins and supplements category surpassing sales of cold and flu products for the first time. As a result, we expanded our Live Better by CVS Health line to include new offerings, which emphasized trending ingredients like mushrooms, ashwagandha, echinacea, apple cider vinegar and more.

In another example, we noticed a change in coffee habits with increased at-home consumption, the importance of sustainability and consumers’ desire to feel good about the brands they support. As a result, we launched Gold Emblem Fair Trade Certified Coffees. Because it’s Fair Trade Certified, customers can feel good knowing that it empowers farmers and protects the environment. CVS is the first drug store to offer 100% Fair Trade Certified products within its exclusive store brand.

Another trend consumers embraced this past year as their snacking habits changed was an inclination toward bold flavors and buying bigger family-sized packs in the grocery sector as many shoppers across the country were traveling less and working from home. In keeping with these trends, we offered larger sizes in some of our popular items like nuts and trail mix, and launched new items like the Gold Emblem Extreme Hot Cheese Popcorn that offer the boldness customers are hungry for.

Many consumers adopted self-care at home last year, and it is still a strong trend in our stores. Male consumers especially are investing in their self-care and grooming. We launched a new brand, Goodline Grooming Co., which encompasses more than 35 items across shave, skin care, tools, and bath and body. The brand was built for guys, by guys, using a panel of 90 “guys” to inform all aspects of the brand.

DSN: How important is sustainability to the private-label consumer?

BL: Customers are asking smart questions about the products they buy and/ or put in their bodies, and we know that one of the things they’re looking for are brands that prioritize and promote sustainability. Our customers are increasingly conscious of product sustainability and supply chains.

Sustainability is a core area of focus. As a company dedicated to improving people’s lives through innovative and high-quality health offerings, we are vigorously working to ensure that customers have access to affordable, accessible, sustainable options across our storebrands portfolio. In our Total Home Earth Essentials line, we recently introduced compostable bamboo plates and cups, birch utensils from Forest Stewardship Council-managed forests, and bio-based dish soaps free from parabens and phthalates — all high-quality, sustainable solutions that help customers make eco-friendly swaps in their home without a hefty price tag.

We’re on the lookout for even more innovation in sustainable and minimized packaging, and anticipate more collaboration in the industry to support this.

DSN: How is CVS working to meet these demands in its private brands?

BL: Trust and transparency within each of our product lines is of the utmost importance, so in 2017 we removed parabens, phthalates and the most prevalent formaldehyde donors from all our store-brands lines. This move

was due partly to our journey towards more sustainable products that satisfy consumer expectations, and to further deliver on our commitment to safety, quality and trust.

Today, consumers want more from brands and products, and expect large organizations to be transparent and purposeful. In 2020, we began an assessment of our store-brand packaging materials made up of plastic. By surveying select store-brand suppliers responsible for producing a large percentage of our plastic packaging within the store-brands portfolio of products, we will gain a better understanding of the impacts within our supply chain and inform meaningful sustainable packaging targets, leading with our store-brand products.

Another step we took last year was to join the Sustainable Packaging Coalition’s How2Recycle program to begin including detailed recycling icons and instructions on our store-brand product packaging. The How2Recycle label includes details on the type of packaging material, which components of the packaging are recyclable and directions for how consumers should prepare each component for recycling, such as rinsing.

We have already begun adding How2Recycle labels to some of our products, including CVS Health Vitamins and Total Home, which will begin shipping to stores by the end of 2021.

To further our commitment to providing quality and innovative products that are sustainable, we announced the expansion of our Live Better by CVS Health line in June of last year. ... All the packaging in the Live Better line is at least 80% recyclable, with many simply requiring consumers to remove specific elements to allow for easy recycling. For instance, with some vitamin bottles the customer may need to discard a small foil seal or cotton, but the bottles and caps themselves are fully recyclable. Laboratories, a maker of personal care products, said consumers are seeking proven and safe lifestyle ingredients, such as turmeric, lavender, apple cider vinegar, tea tree oil and others in skin care, OTC, hair care, household cleaning and other categories.

One key trend is to bundle proven active ingredients with a natural oil or with homeopathic solutions, she said, which demonstrates that consumers are “looking for results, but also alternative remedies.”

Consumers also are seeking “no touch, no mess” packaging for ease of use or application as a benefit, Groth said.

Retailers also have been open to own-brand products that do not need a “compare to” claim to contrast with national-brand offerings, she said. “[This] shows strength in own-brand growth and ability to take market share from branded offerings.”

Michael Law, chief commercial officer at Eagle Labs, a contract manufacturer of a wide range of pharmaceutical and HBC products, said consumers are seeking private-label products that can match or even exceed national brand quality. “Helping consumers save money has always been a key element, but the role of private label has shifted dramatically over time,” he said.

Retailers can build stronger connections with consumers by ensuring that their private labels are of high quality, Law said. “Private-label brands need to lead versus follow in key areas like sustainability, premiumization and building trials to gain share.”

To build share in private label, Law suggested that retailers on the leading edge of private-label branding and growth should consider these areas of opportunity: • Focus on sustainability: Retailers should seek ways to increase their focus on environmentally friendly ingredients and packaging, including recyclable and reusable packaging, as well as the increased use of plant-based ingredients, he said. • Increase efforts around premium/higher end private label: “Consumer trust in private labels has grown significantly over time and retailers that have built strong equity have permission to build premium private-label sub-brands that can increase margin and help them capture greater share,” Law said. “Consider leading with innovation instead of just waiting for the national brands to lead.” • Lower consumer risk of trial: Retailers can help consumers switch to store brands by lowering the financial risk of trial, he said, citing tactics such as making it easy for customers to obtain refunds if they are not satisfied with a product, for example, or offering targeted, high-value coupons to encourage trial.

Looking Ahead

Supply chain delays and inflationary cost pressures for a range of consumer goods are expected to linger into next year, but industry leaders are optimistic about private label’s resilience.

Stump said McKesson has been working through the same supply constraints and logistics challenges that have been widespread across industries.

“We have been working proactively and collaboratively with our key supplier partners to ensure our demands align with their production plans, resulting in choices at shelf,” Stump said. “Sitting here 18 months ago, none of us could have predicted the uphill supply battle we have been facing since 2020. We are not out of the woods yet, but we are leveraging all available avenues together and we remain optimistic about where the retail landscape will be a year from now.”

PLMA’s Davies said the outlook is especially bright in health-and-wellness categories, as consumers continue to seek out products for preventative care. “As we move into 2022, a focus on health and wellness, sustainability in both products, and packaging, along with the development of plant proteins and organics for retailers’ own brands, will continue to drive share for retailers and profitable volume for both PLMA members and our retail partners,” she said. dsn